industry
Consumer Products
Strategy Development for a Consumer Product Manufacturer
Client Problem
- Division of large (~5B/year) consumer products manufacturer
- Generating lower margins than overall business
- Competing in markets which are newer and more technologically sophisticated than company's core business
Project Objectives
- Evaluate prospects for long-term profitability of the business
- Decide on best approach for business (grow, maintain, exit)
Approach
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Determined channel/product profitability and competitive cost position
- Analyzed operations (plant, distribution, and R&D) to determine client's actual costs for each product/channel combination
- Client had been using "normal" costs which differed significantly from actuals for certain key products
- For individual products, some large channels had negative contribution margins
- Estimated competitor's costs using scale and experience curves based on historical analysis of client's costs
- Assessed future market potential for each major product line
- Integrated information regarding worldwide markets
- For nascent products, developed "bottom-up" market estimates by examining technical suitability of client's products to new applications
- Created integrated dynamic model of how cost and market position would likely evolve over time for each product
- Unit costs (by product/channel) for client and key competitors
- Market sizes (by product/channel) and prices
Results
- Identified products and channels in which client was most competitive
- Client's overall competitive position varied widely by product/channel based on varying degrees of price sensitivity, brand loyalty, and technical sophistication
- Gross margins ranged from +50% to -50% depending on product and channel
- Focused management effort on developing business segments with best long-term potential
- Discontinued costly capital investment in one product where client was irreparably, structurally disadvantaged (improving NPV of business by 20%)
- Continued operations in products that had a solid competitive position
- Shifted production scheduling priorities from low/negative margin products to more profitable products
- Developed integrated model of business of facilitate further decision making
